The global power sector, long reliant on fossil fuels, must change its business models in the wake of climate change and protect their businesses from climate-related risks.
The increase in frequency of extreme weather events has exposed the vulnerability of power systems and companies need to build resilience while at the same time mitigate the carbon emissions from the sector, says former president of French energy giant Alstom, Philippe Joubert.
Speaking to Eco-Business in a recent interview in Singapore earlier this month, Joubert, who is also senior advisor and special envoy of energy and climate change at the World Business Council for Sustainable Development, notes that energy demand is set to double from now till 2050, which is why it is imperative that the power sector must ‘decarbonize’ by pursuing carbon-free technologies and energy efficiency.
Although this cannot happen overnight as huge assets and investments are involved, he says certain businesses are already showing leadership in addressing sustainability and climate change issues. Here, he elaborates on why businesses which stubbornly stick to the status quo should be afraid.
Countries in Asia still rely heavily on fossil fuels. In Singapore, for example, 80 per cent of the country’s energy consumption is powered by natural gas. How feasible is it to decarbonize the power sector?
There are a few ways to tackle this issue. The first is maximize the use of renewable energy and Singapore is doing that with its initiative to put solar panels on roofs. There is also energy efficiency - every country should seek to push the limit on energy efficiency. And lastly, if we are still reliant on fossil fuel, we should look at carbon capture and storage (CCS), which is essentially finding places to store carbon emissions. There are proven CCS projects that used old oil fields to contain the emissions, so this is a realistic solution.
Another solution could be to integrate power markets. We have seen in Europe that when the share of renewable energy goes beyond a certain threshold, there is an issue of intermittency (where a source of energy is not continuously available). Integrating the region’s power markets will allow countries to use power from neighbouring countries as a backup. There’s a lot of potential in this.
Is CCS really a viable option? So far we’ve only seen pilot projects.
It’s true that most of the projects are at the pilot stage, and we need to scale up. When I was president of Alstom power, I promoted CCS. But the reason why the market has not responded to this technology is due to a few factors. Firstly, the cost of investment into CCS is quite high. Another reason why CCS has not taken off is stakeholder acceptance. We’ve never been able to explain why CCS is important and overcome the misperceptions that CCS plants will explode, or poison the food and water. We have not been able to explain it properly.
But the most important explanation is because it is still free to pollute and put carbon emissions in the atmosphere. So why should companies shoulder the cost? When the price of CO2 reaches US$40 to US$60 per tonne, CCS will become good business. Some projects have shown we only need a 15 per cent tax on energy for CCS to be viable.
You talk about the decarbonization of the sector but in Asia, coal power continues to grow. What can we do to shift the energy industry away from this source?
If we want to change the behaviour of a business, we have to change the way we evaluate them.
Objectively, coal is one of the most efficient and cheapest fuel for generating electricity. It is also abundant, so as long as there is no price on pollution, the coal industry will continue to grow. Governments feel they are responsible for their citizens but when it comes to something like the atmosphere, they are not responsible. It’s a tragedy of the commons.
There is a growing movement calling for the financial sector and investors to divest from fossil fuels. Do you think this will become a significant trend and should energy companies be afraid?
Yes they should. You can’t put all energy companies in the same category as some are better than others. There are some companies in denial, and others which are already considering a carbon price in their investments, or seriously looking into CCS. There is a change in the mentality (of investors) and the divestment movement is here to stay for sure. It’s a free movement of rational people who have identified the link between carbon emissions and climate change, so there will definitely be consequences on energy companies and the value of their shares.
Global financial services firms such as Rabobank and Sotrebrand have divested from fossil fuel companies because of the carbon risk. Moody’s has also downgraded mining companies. If we want to change the behaviour of a business, we have to change the way we evaluate them.
Tell us more about the Global Electricity Initiative which you chair, and the survey it conducted this year. Were there any surprises in the findings?
The Global Electricity Initiative (GEI) aims to increase electricity access in a reliable, affordable and sustainable manner worldwide. It publishes a summary of initiatives report every two years which showcases proactive actions that utilities are undertaking to increase access to this affordable and clean electricity.
The latest report will only be launched next month, but I will say that one of the surprising conclusions was that the power sector is very concerned about land and water issues. The power sector is also saying that they are receiving contradictory inputs from regulators and consumers. They need a clear direction if they are going to make a change.
While some power companies are going into renewables, the storage technology is still missing. We’re working very hard on smart grids and integration. Finally, we have a problem because majority of customers want clean power but do not want to pay a cent for it. That’s why the price of carbon is so important. Clean energy is not competing on a level playing field (with fossil fuels).
Eventually, we will have this carbon price whether indirectly or directly. We have businesses supporting things like the Carbon Price Communiqué (launched in 2012 and makes the case for setting a price of carbon). No one is agreeing on the price now and this is creating uncertainty, but companies know there will be a price sooner or later, so we should establish one. We already see such mechanisms on the regional level.
You’re also senior advisor to the World Business Council on Sustainable Development. What is the organisation doing in this area of power generation?
We have a set of targets for the sector to achieve by 2020. We’ve released a comprehensive report, ‘Building a Resilient Power Sector’, which analyses climate impacts on power systems, explores how to better forecast weather and long-term climate risk, and shares companies best practices from around the world.
It makes a few key recommendations for the industry, including:
The way we are producing and using energy has to change. When we have grown to 9 billion people on this planet, all desiring increased comfort levels, how long more can we sustain this?
- Build expertise in analysing climate information to understand risks better, especially downscaling global climate models to a more local level.
- Use risk management and risk cost benefit analysis when developing adaptation strategies to determine which solutions are efficient and cost-effective.
- Engage with regulators about incentive structures to make adaption investments viable financially.
- Continue investing in R&D to develop effective upgrades to major infrastructure elements, broadening the range of options and reducing costs over time.
- Pool learning, exchange best practices and share resources to respond more effectively to extreme events.
Today, you can already see the industry changing. Electricity companies are investing in renewables. The biggest coal company in South Africa, Eksom, is developing a huge solar and wind programme. In China, the government is thinking about banning coal in Beijing.
This is not just about awareness, the change also makes business sense. You cannot say the business models of today will be around 20 years from now. Those not in denial know things have to change. The way we are producing and using energy has to change. When we have grown to 9 billion people on this planet, all desiring increased comfort levels, how long more can we sustain this?